Binance Research has lately released a new report that analyzes cryptoasset cycles and it seems to say that the cryptocurrency market has bottomed out.
According to the information revealed by Binance Research study, digital currencies started their slow recovery from the major low points of 2018, and from the beginning of 2019, Bitcoin – which still holds more than 50% of the market highly influencing altcoins’ prices – displayed a 40% growth rate. We need however to mention that most of that growth in Bitcoin price took place on April 2nd 2019 when Bitcoin crossed the $4,200 resistance line to reach the important $5,000 mark.
And when Bitcoin moves, altcoins have a tendency to follow shortly behind as most investors try to avoid putting all eggs in one basket and diversify their crypto portfolios with promising and more technologically advanced projects such as EOS, Tezos, Cardano or lately Cosmos.
It appeared therefore reasonable for many crypto analysts and media outlets to call this period as the altcoin season, especially when some of these altcoin projects seem to display an even more aggressive growth speed than the king of cryptos.
Throughout 2018, most people believed that Bitcoin price bottom has been touched at the $6,000 level since Bitcoin managed to find a good support area around that point. We were of course wrong as Bitcoin price took another deep dive in November 2018 to fall around $3,100.
This is the level mentioned by Binance Research in their study as the bottom of the cryptomarket and the position from where Bitcoin price started to slowly go upwards to where it is today, around $5,000.
We have to emphasize nevertheless that for the next Bull Run to begin, Bitcoin still has to climb back above $6,000, the major support line of 2018, which is now acting as a point of resistance pushing Bitcoin’s price down and testing the determination of the bulls.
So, only when we see Bitcoin’s price rising above the $6,000 resistance line and maintaining the position for some time above that level, we can definitely say that the next Bull Run is in development.
If we go back to Binance study, we do indeed discover the existing correlation between Bitcoin and altcoins prices and further more we find that altcoins among themselves are connected to a large degree. The reason behind this phenomenon stands in the so-called “herding effect” mentioned by Binance which suggests an irrational behavior of retail investors and the new born cryptomarket that is still highly influenced by sudden moves of volumes and less by long-term strategies of development.
Another interesting correlation found by the study is that the cryptomarket and the Chinese stock exchange seem to have similar evolutions as both spaces are dominated by retail investors who have the tendency to become overconfident or pessimistic with regard to market trends leading further on to unexpected high transaction volumes and volatility.
A final discovery is that 7% of digital currencies are held by institutional investors, which is quite a low number if we compare with the traditional US stock market where large investors control 90% of the overall holdings.
We have to understand however that the traditional financial market controlled by major investment funds and large institutions is working in a well-defined regulatory system, whereas the cryptoasset market is less than 10 years old and still lacks investor protection measures and a general legislative framework.
Binance Research study may have attracted our attention for revealing the cryptomarket bottom – $3,100 in November 2018 – and the forthcoming arrival of the next bull market period, but we should take into account that we participate in an emerging industry that is controlled by unexpected volumes that we cannot anticipate and still lacks major regulatory measures to protect not only investors but also everyday traders.